Don’t we all want to startup?
Startups are young companies born out of a desire to bring a change in the market.
This change can be a new product or service, or an innovation in the existing industry.
But long before we plan on starting a startup one thing is for sure, we need to understand the terms and concepts that are the ingredients of a startup.
In this blog, let’s demystify all the complex startup jargon.
Or, a business is nothing without its people.
It all starts with the founder.
Or better yet, it all starts with the founder’s dream.
When co-founders Deepinder and Pankaj saw queues of people outside restaurants during lunchtime, Zomato’s idea was set into motion.
Food-court menus were listed on the co-founders’ company website and soon enough, the employees started to use that portal for convenient food – ordering. This brought massive traffic to the site.
So, this is what founders do; they notice pain points, think of a solution and kickstart its execution.
The founder’s vision is the single most important factor contributing to the success of any venture.
Zomato is not just busy revolutionizing the food delivery scene, it is also making people laugh on Twitter and Instagram.
Within a startup, creators are the underdogs who give a voice, personality, and humanity to the brand.
From writing scripts for an advertisement to designing logos for the company, creators take up a vast plethora of roles.
The next time you receive an “order confirmed” email, admire a brand’s Instagram aesthetics, or laugh at a YouTube ad, know that there’s a team of creators working tirelessly to make the brand come alive.
1.3 Operation Specialists
Operation specialists keep the cog of the company wheel running day in and day out.
This includes roles specializing in operations such as sales, customer service, human resource management, marketing, business development, and more.
2. Business and Financing
Or, a dream is nothing without its execution.
Business ideas aren’t worth it if they don’t solve a problem for a specific set of people.
In the Zomato inception story earlier, founders of Zomato observed the pain points of their colleagues; people were wasting hours catching lunch on a busy day.
Their idea was to simplify the process of food ordering. And it worked!
Validation is when a solution for a particular pain – point is verified to be useful by the market.
Validation is done in many ways – market research, feedback, targeting customers, having an MVP, etc.
Zomato founders executed their idea by using their company’s private online portal and adding food court menus in the repository.
They wanted to see if people would be interested in using the portal to browse and order food. Turns out, the traffic was immense on the site!
MVP, or Minimal Viable Product, is the usable prototype for the first target customers to fulfil a need.
It contains the barebone characteristics of the full product and is tested to see if it aligns with the market.
2.3 Pitch Deck
Think of Shark Tank.
The entrepreneur stands in front of 5 seasoned investors and gives a brief about their startup.
This is called pitching, and it’s done to appeal to the investors with the goal of receiving financing from them.
A Pitch Deck is a presentation consisting of the brief summary, scalability, team, and market of the startup.
It includes all the valuable information about the startup’s growth that the potential investor may find attractive.
Every startup needs funds to kickstart its operations. They’re secured in multiple ways.
|Bootstrapping||Founder uses up savings to inject capital into the startup|
|Seed Funding||Friends, family, and acquaintances of the founder provide capital to the startup idea in good faith|
|Crowdfunding||This is the process of a large number of people raising money for the venture through small amounts individually|
|Angel Investing||High net-worth individuals provide funding for the startup either as a loan or in exchange for an ownership stake in the company|
|Venture Capitalists||VCs and VC firms target companies that are looking to commercialize their idea.
They provide capital and mentorship (occasionally) in exchange for a stake in the startup.
Certain startup ideas seem profitable, and some ideas may not have a lot of growth potential.
Valuation is the process of quantifying the worth of the startup operations.
This figure is crucial as it determines the amount of capital the investor will give and their ownership stake in the company.
Factors that influence valuation include – prototype, traction, industry, team, reputation, market, and more.
2.6 Pre-Money and Post-Money Valuation
Pre-Money Valuation is the company’s worth prior to any external funding or investment. It includes the total worth of the company before receiving financing.
This valuation is subject to negotiation between investors and founders.
Post-money valuation is the startup’s worth after round(s) of external financing or capital injections are added to the balance sheet.
Post-money valuation = Pre-money valuation + investments
It is inclusive of pre-money valuation plus the investments received from VCs or angel investors.
2.7 Burn Rate
It’s magical thinking to assume that all the cash received by the company returns as profit in the future.
Burn rate is the cash startup is “burning” in running its operations.
So, if a company has $1 million in their bank account, and it spends around $200,000 per month, the burn rate will be calculated as
($1,000,000) / ($200, 000) = 5
For a lot of founders, exiting their own venture with a certain profit is the main goal.
When the company scales itself enough that it reaches the public listing through an IPO (or an M&A situation), they exit the startup with their shares.
Almost every startup aims to be public one day.
IPO is Initial Public Offering, or when the company’s shares are open to the general public to trade on the stock market.
Or, the art of creating value.
3.1 Target Market
Think of it this way – if there’s a mental health startup aiming to make therapy accessible, it cannot possibly include everyone as its market.
This means that it cannot cater to middle-aged people, school going kids, or the young corporate crowd as customers all at once.
“If you speak to everyone, you speak to no one.”
Targeting a specific set of consumers through market research and analysis is finding out the target market for a startup’s products and services.
The brand directs all its marketing efforts and showcases its services towards these segments of customers and their needs.
3.2 Inbound Marketing
You follow certain brand pages on social media because you find their content, advertisement design or product valuable.
From Instagram’s aesthetics to LinkedIn posts, inbound marketing aims to create a lasting relationship with potential consumers.
This is done through strategies aimed at attraction, engagement, and providing solutions.
3.3 Outbound Marketing
While inbound marketing tends to build organic relationships with the consumers, outbound marketing pushes the message in the general direction of the public.
This is done through email spam, cold calling, billboard ads, pop-up ads, and more.
3.4 Growth Hacking
From knowing when to use buzzwords in the ad copy to suggesting that fast food joints should have drive-throughs on highways –
– Growth hacking is a newly evolved area of marketing aimed to accelerate the company’s growth in creative and innovative ways.
3.5 Product-Market Fit
Can you live without Uber, Zomato, or Google? If your answer is no, then it can be said that these companies have a solid product-market fit.
This term describes the process of the product is so important to the consumer’s specific need that they can’t live without it.
Technically, this means that the product is tailored to fit the demands of a large consumer base.
3.6 Market Sizing
Market sizing is crucial for all sorts of decision-making.
It determines the company’s profit and investment amount in the long run. It includes questions like – who will use the product, for how long, and how many?
The buyers of a particular product or users of a service are estimated through certain methods and procedures.
Or, making it official.
4.1 Co Founder Agreements
Zomato, Google, and Flipkart – all of them have more than one founder.
Co-founder agreement establishes working coordination of more than one founder to prevent future disputes and to safeguard conflict resolution.
It contains comprehensive clauses to describe the working relationship between the founders and outlines the basic communication.
Can any other brand take up the half-eaten apple as their logo?
The answer is no, and the reason is trademark registration.
It guarantees exclusive ownership to the brand to use the logo, brand name, slogan, packaging, and more that establishes its unique brand identity.
4.3 Non – Disclosure Agreement
Any party which has access to the startup’s private information is given an NDA to protect that information.
This can be given to clients, investors, and employees. It specifies what constitutes confidential information, who owns that information, the time range of confidentiality, and more.
4.4 Intellectual Property Rights Agreement
Intellectual property includes confidential material like business development plans, new products, invention ideas, authorships (like website codes or marketing materials), branding information, and more.
Having complete ownership of all the IPs is crucial for any startup.
4.5 Convertible Note
When the startup founders decide that it’s time to raise capital from potential investors, SAFE Notes can be used.
They help startups raise financing as debt, with a provision to convert the investment into equity in the startup after a certain maturity duration.
They’re debt instruments ensuring that the investment is either repaid as a loan or is converted into equity.
4.6 SAFE Note
A SAFE note is an agreement between a startup and an investor which warrants rights to the investor in owning future equity of the startup.
They’re an evolved form of convertible security but aren’t a debt instrument.
A SAFE note is also a somewhat similar Convertible security except that the aspect of loan and interest rate is not there. This means that the founder does not have to worry about the impending maturation date, tricky legal paperwork, or paying back the interest rate.
An absence of a maturity date means that it’s up to the founder to convert the investment into equity at preferred timings rather than obligatory ones.
Or, the devil is in the details.
5.1 A/B Testing
Whenever you land on a website, you might see a template pop up seeking permission for your email-id.
Majority of websites follow this protocol of a box popping up 2 seconds after you open the page.
A/B testing has proved it to be effective in seeking emails from potential clients.
A/B testing is a process of experimenting with 2 or more versions of a variable (web page, pop-up message etc).
These versions are shown to different segments of traffic at the same time to determine which version leaves an impact and drive business metrics.
To launch a functional application- app/website – programmers create a tech stack.
It includes everything needed to kickstart the operation, from the programming language, frameworks, tools, to databases.
5.3 QA and QC
Quality Assurance, or QA, is a roadmap created by a team of experts and consultants for high-quality products.
If the QA protocol is followed by the designated teams, then the overall quality of the products or services is ensured.
Quality Control, on QC, involves testing of the product or service post its release to ensure that the efficacy is consistently maintained.
Rome wasn’t built in a day. Neither are startups.
But they’re not as complex as they look from afar. In fact, an understanding of the basics instils a sense of confidence in individuals with an idea.
A masterful execution occurs only when theory is tested, and plans set things in motion.
Are you ready to begin your own venture?